Price of Gold Fundamental Daily Forecast – Yields, Dollar Will Drive the Price Action, Not the NFP Headline

Gold futures are inching higher early Friday as traders await the release of the August Non-Farm Payrolls report at 12:30 GMT that could set the tone of the market the rest of the session. Today’s early price action is likely being fueled by short-covering and position-squaring ahead of the report since it has been known to fuel volatile responses.

At 09:29 GMT, December Comex gold futures are trading $1945.60, up $7.80 or +0.40%.

Gold Falls as US Data Bolsters Economic Recovery Hopes

Gold prices fell over 1% on Thursday, as positive U.S. economic data elevated hopes for a quick recovery and dented allure of the safe-haven metal.

A drop in U.S. jobless claims reported Thursday and positive manufacturing data reported earlier in the week reduced some of the recent demand for gold as an investment.

U.S. weekly jobless claims fell below 1 million the week-ending August 29 for the second time since the COVID-19 pandemic started, but did not signal a strong recovery in the labor market because the drop largely reflected a change in the methodology used to address seasonal fluctuations in data.

But data earlier in the week boosted optimism about a steady recovery. New orders for U.S.-made goods increased more than expected in July, while U.S. manufacturing data showed activity accelerated to a near two-year high in August.

Daily Forecast

Data due later on Friday is expected to show U.S. non-farm payrolls grew by 1.4 million in August, which would be slower than the 1.763 million jobs created in the previous month. On paper, this should be bullish for gold because a low number would like drive U.S. Treasury yields lower, weakening the U.S. Dollar and driving up demand for dollar-denominated gold.

However, this hasn’t been a normal week. Although most traders are saying gold plunged when the dollar index bottomed in response to stronger-than-expected ISM U.S. Manufacturing PMI data, we think there is more to that. We’re looking at the Euro as the driver of the price action.

The Euro fell sharply earlier in the week after a report showed negative inflation in the Euro Zone and another report said European Central Bank policymakers are concerned about the rapid rise in the single-currency and its possible negative impact on the Euro Zone economy.

As the Euro plunged, the Dollar Index rose and traders sold gold. Gold even fell as 10-year Treasury yields dropped, further evidence that this was a strange week.

Yesterday’s stock market plunge should’ve driven some equity hedgers into gold, but we didn’t see much evidence of that. The biggest fear for gold traders over the short-run should be the possibility of a steep break in equities. If this occurs, investors may rush into the U.S. Dollar because of its appeal as a safe-haven asset. If this happens then look for gold prices to weaken.

For a look at all of today’s economic events, check out our economic calendar.